A Study on Corporate Governance of Vietnamese Firms

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2 27 自由論文 A Study on Corporate Governance of Vietnamese Firms Phung Dinh Trong Masayoshi Toma Abstract Based on the result of actual survey concerning corporate governance of Japanese companies conducted by study group at Wako University, a short survey was conducted at four companies in Ho Chi Minh City, Vietnam. Through this survey, this paper introduces briefly about corporate governance of Vietnamese companies and notes some differences of corporate governance between Japanese companies and Vietnamese companies. Keywords Vietnamese companies, Japanese companies, Corporate governance, Compliance 1. Introduction Corporate governance has become one of the most important topics in many countries. Good corporate governance enhances company s value which makes it easier to obtain capital from investors and prevents unjust practice, collusion among managers on the board, etc. Corporate governance has been noticed in many economies but recently corporate governance issues of transition and developing economies have attracted a great deal of attention from many researchers, managers, etc.(mcgee, 2010). Based on this point, this paper introduces briefly about corporate governance in Vietnam. Since the reform policies were conducted in 1986, Vietnamʼs economy has shifted into the market economy and there were many changes in entrepreneurial law. Especially, appearance of a large number of limited liability companies and shareholding companies shows that corporate governance holds extremely important role in these companies. Nowadays, there are many notable issues of corporate governance in Vietnam. Hence this paper lists up these issues as well to show that it is necessary to improve corporate governance system in Vietnamese companies more and more. Moreover, this paper mentions an actual survey result concerning corporate governance of Japanese companies conducted by a group of researchers at Wako University. Based on this result, an interview survey was done at four Vietnamese companies in Ho Chi Minh City. Also, comparison of corporate governance between Japanese companies and Vietnamese companies is noted in this paper.

3 28 和光経済 第 48 巻第 2 号 2. Corporate Governance in Vietnam 2.1. History of corporate governance in Vietnam In 1986, Vietnam s government had carried out a new economic policy named Doi Moi(Renovation)in order to promote national socioeconomic development and push Vietnam to join a market economy. Since then, domestic economy has gained significant development and there have been notable changes of policies such as issuance and amendment of foreign investment law, private enterprise law, state-owned enterprise law, etc. Especially, as of 1992 that Vietnam s government begun to implement demutualization of state-owned companies, a large number of stateowned companies have been transformed into shareholding companies or limited liability companies. Due to the appearance of the shareholding companies, Vietnam s stock market has attracted an attention of a large number of investors. In 2000, the first stock exchange named HOSE(Ho Chi Minh City Stock Exchange)was established in Ho Chi Minh City and in 2005 the second stock exchange named HNX(Hanoi Stock Exchange)was set up in Hanoi. Since the stock market has developed, capitalraising instruments of Vietnamese companies have become diverse. In order to promote the transition of state-owned companies into shareholding companies or limited liability ones and integrate policies, laws for all types of companies, Vietnam s government announced the Vietnam Enterprise Law in It provides equal treatment concerning establishment, management organization, operation, etc. to all companies. And under this law, corporate governance of Vietnamese companies has been specified. Corporate governance in Vietnam is considered as a system to separate ownership and management in order to prevent scandals in companies, enhance profitability and value of the companies as well. Regulations of corporate governance in Vietnam are to ensure governance institutions effectively, to protect rights of shareholders, to do equitable treatment of shareholders, to ensure interests of stakeholders, to enhance responsibilities and operations of the board of management and supervision board. Until now, there are a large number of stateowned companies transforming into shareholding companies or limited liability companies. Governance structures of these companies are different. Limited liability companies in Vietnam are divided into two types: Limited liability company with two or more members and limited liability company with one member. Limited liability company with two or more members is structured by a member s council, a chairman of member s council, general director. Supervisor committee is required in case there are more than 11 members in the limited liability company. In this limited liability company, a chairman of member s council is able to play a role of general director concurrently(tanaka, 2009, p. 97). Next, in the case of limited liability company with one member in Vietnam, there are two types depending on whether the owner is an individual or organization. One member limited liability company owned by one organization concludes a member of council, general director and supervisor. And one member limited liability company owned by an individual is structured by a chairman of the company and general director(tanaka, 2009, p. 98). A shareholding company in Vietnam is a company with at least three shareholders. Its man-

4 A Study on Corporate Governance of Vietnamese Firms 29 agement structure consists of shareholder s meeting, board of management, general director. Supervisor committee is needed if there are more 11 individual shareholders or if the corporate shareholder owned more than 50% of shares(tanaka, 2009, p. 101). Corporate governance of limited liability company and shareholding company in Vietnam has been abided by Enterprise Law 2005 and Securities Law Nowadays, almost Vietnamese companies have obeyed regulations of these laws and placed a great deal of importance on corporate governance Problems of corporate governance in Vietnam However, there are some problems on corporate governance in Vietnam(Cung, 2008; Tuan & Tuan, 2013). For example, a position of stateowned company in the national economy is on the decrease but it is still at high level. Next, since family members of a family-style management is to obtain a position of the highest decis i o n - m a k i n g b o d y s u c h a s o w n e r a n d management executive, almost there is not any separation of ownership and management. In addition, authority and responsibility of supervisor committee, management executive are unclear; Incentive system for management executive, director is insufficient; Disclosure and transparency issues have not been promoted yet. And compliance is not still mentioned at many companies in Vietnam, etc. Due to above problems of corporate governance in Vietnamese companies, Vietnam has recently conducted a scorecard survey to show corporate governance standards and practices in Vietnamese companies. This survey s content is based on five areas recognized by the OECD as keys to good corporate governance. Its result helps investors evaluate progress of Vietnamese companies. For instance, in 2012 IFC presented overall corporate governance performances 2009, 2010 and Table 1 shows scores of corporate governance of Vietnamese companies of 2011 decreased compared to 2010 s results. According to a benchmark of corporate governance, a total score between 65% and 74% presents good corporate governance practices in a company. However, all areas of 2011 in Table 1 such as rights of shareholders, equitable treatment of Table 1: Overall corporate governance performances 2009, 2010 and 2011 (%) Mean Minimum Maximum Overall CG performance Area A - Rights of Shareholders Area B - Equitable Treatment of Shareholders Area C - Role of Stakeholders Area D - Disclosure and Transparency Area E - Responsibilities of the Board Source: IFC, Vietnam Corporate Governance Scorecard 2012, p. 13.

5 30 和光経済 第 48 巻第 2 号 Figure 1: Mean Scores by country Source: ADB, Asean corporate governance scorecard, Country reports and assessments , p. 5. shareholders, role of stakeholders, disclosure and transparency, responsibilities of the board are at low level. These scores are not more than 60%. This result shows that corporate governance practices in Vietnam remain more evident in rules than in application and implement. Furthermore, since there are some above problems, corporate governance in Vietnam gets a poor evaluation in Asian area. According to corporate governance scorecard of ADB in Figure 1, mean scores of corporate governance of Vietnam in both 2012 and 2013 are low compared to other countries such as Indonesia, Malaysia, Philippines, Singapore, Thailand. 3. Actual survey concerning corporate governance of Japanese companies In February 2004, researcher group of Wako University conducted the survey concerning governance of small and medium-sized Japanese companies. They set up 6 question items for this survey. Regarding the 1st question item Do you think that compliance is important in business environment?, response rate of Highly important is 38.9%; Little important is 30.5%; No opinion is 18.6%; Not so important is 6.6%; Not important at all is 5.4%(Ueno et al., 2014, p. 59). Next, response rate of the 2nd item Is your company one with supervisors or one with committees? is as follows: The company with supervisors accounts for 60.5%; The company with committees accounts for 39.5%. The 3rd item How is appointment of future successor determined in your company? gets response rate as follows: Management board such as chairman, general counsel, general director is future successor accounts for 40.1%; Appointment is determined by performance and contribution of individual accounts for 26.3%; Election of family member is 21.6%; Direct superior is 6.0%; Recommendation from colleagues is 3.0%; Others is 3.0%. Regarding the 4th item Do your company carry out education of corporate governance?, the response rate of Our company conduct training sessions in the company is 37.7%; Leave it to each individual is 19.2%; Consult with experts inside and outside the company

6 A Study on Corporate Governance of Vietnamese Firms 31 when needed is 16.8%; Do not carry out training is 13.6%; Others is 0.6%. And, the response rate of the 5th item Which institution does control of your corporate governance depend on mainly? is as follows: Depend on ISO system, etc. is 38.9%; Depend on external supervisors is 26.3%; Depend on business partners is 20.4%; Depend on financial institutions is 8.4%; Depend on labor union is 1.8%; Others is 4.2%. Finally, regarding the 6th item Is corporate governance closely related to your organization culture?, the percentage of response of No opinion is 40.7%; Be less related is 25.7%; Not related is 15.6%; Highly related is 10.8%; Not related at all is 7.2%. The above survey result suggests that many Japanese companies be the ones with supervisors. They ve placed emphasis on compliance and appoint future successor by choosing management board such as chairman, general counsel, general director. Training sessions concerning corporate governance are often held in these companies. Control of their corporate governance depends on ISO system mainly and there is not a close relationship between corporate governance and organizational culture in these companies. Based on this result, a short interview survey was conducted at four companies in Ho Chi Minh City, Vietnam to specify some similarities and differences between Japanese companies and Vietnamese companies. 4. Overview of interview survey concerning corporate governance at Vietnamese companies In August 2015, short interviews to director and vice-director were carried out at four companies named BITAHACO, BITEX, TAN HOA LOI, UU VIET in Ho Chi Minh City, Vietnam. Among these companies, there are two shareholding companies and two limited liability companies. Below are brief profiles of these companies BITAHACO company BITAHACO company was established in 1978, running commerce and travel. It has a headquarter in Ho Chi Minh City. Being a jointstock company with 51% public capital, it works as a subsidiary company under the control of government. It imports primarily commodities such as materials, pesticide, kinds of machines, industrial chemicals, etc. In addition, it also exports fresh seafood like lobsters, fish and crabs to Hong Kong and Japan; farming products such as sesame and beans to Korea, Taiwan, Japan; and cakes, candies, peanuts to Southeast Asia, Taiwan, etc. With high enhancement as well as trust of the partners inside and outside the country, it has awarded the second and third Labour Medals by the President of the Vietnam Socialist Republic BITEX company BITEX company has stepped into the business world since Its headquarter is located in Long An and its two branches are located in Ho Chi Minh City and Ha Noi. It was privatized 100% in 2002 and now it works as a Joint-stock company but hasn t been on stock market yet. It distributes main products like Casio calculators, stationery, Horse office supplies, APP paper, Great dictionaries and Casio projectors. It is a Casio calculator sole agent nationwide. Its customers are offices, schools, bookstores, and supermarkets, etc. In 2003, it enlarged its business extent to building and renting stores, shops, and offices. It got lots of achievements

7 32 和光経済 第 48 巻第 2 号 and many awards for example nation-famous mark in 2010, typical customers of Thailand in 2010 and 2011, Gold prize for national quality management in 2014, certificate of merit of Prime Minister in 2014, etc TAN HOA LOI company TAN HOA LOI company is a limited liability company which has participated in the market since Its headquarter is located in Ho Chi Minh City with 80 staffs. It specializes in supplying the types of bearings, belts, lubricants of agriculture-heavy industry, etc. in the whole of Vietnam with the prestigious Japanese brands like Koyo, Asahi, KSM, NB, etc.; Thailandʼs brands such as KYK, FBL, Miru, Mitsuba, etc. With 9 years of operation, it has achieved significant growth with high credibility and certified as official distributor partner UU VIET company UU VIET Company is considered as a member of the tax advisory council in Vietnam. It is one of the few companies which have qualified providers of accounting, tax agent services as stipulated by the Ministry of Finance and the General Department of Taxation. Its business specializes in supplying accounting services, consulting and carrying out legal procedures for business registration, procedures to establish offices, design website, etc. Founded in 2007, it now has a total staff up to 50 people with professional team of accountants, lawyers, etc. Up to now, it has been serving for many businesses operating in various industry sectors and various fields. Its main customers are foreign-invested enterprises, Vietnamese companies, etc. 5. Result of interviews at Vietnamese companies and comparison with Japanese companies Result of interviews at Vietnamese companies In order to carry out the interview at four companies mentioned above, authors used 6 question items of researcher group of Wako University like Do you think that compliance is important in business environment?, Is your company one with supervisors or one with committees?, How is appointment of future successor determined in your company?, Does your company carry out education of corporate governance?, Which institution does control of your corporate governance mainly depend on?, Is corporate governance closely related to your organization culture?. Below are interview results at four companies in Vietnam. As an interview result at BITAHACO company 1), the compliance is considered as a highly important factor for business activity. It always values management regulations to manage business better. Its framework consists of shareholders, board of management, board of supervision and general director. Appointment of future successor is determined by selecting direct superior. Regarding education of corporate governance, it does not have regular training. However, it invites experts to raise awareness about policies, law, etc. for employees when necessary. To manage business activity effectively, it often attaches special important to shareholders interest and sets up external supervisors. It emphasizes that corporate governance has a close relation to organization culture. It is assumed that organization culture be a measure to improve business activities and let employees have close ties with the company.

8 A Study on Corporate Governance of Vietnamese Firms 33 Next, at BITEX company 2), compliance is considered highly important as well. Being a 100% join-stock company, its framework includes shareholders, board of management, general director and supervisor committee. As an appointment of future successor, board of management selects individuals gaining achievement and devotion to the company. It does not have training of corporate governance but it also exchanges with experts inside and outside when necessary. It bases on ISO criteria, especially ISO 9001 to orient individuals work in an identical process. Since a human resource is one of the most important factors in organization, it has built a control system suitable for business and considers that organization culture has close relation with corporate governance. Also, at TAN HOA LOI company 3), the high importance of compliance is confirmed. Its supreme management includes general director only. Unlike management framework of shareholding companies, it has no supervisor committee. It decides its successor according to the selection of director based on the merits, the ability to devote to business. The training of knowledge on corporate governance has not focused much on in this company. But when there is any issue related to corporate governance, it often exchanges with experts inside and outside the enterprise. Its control of corporate governance does not depend on ISO system, external supervisors, business partners, financial institutions or labor union. And like other companies, its corporate governance is closely related to organization culture. Finally, at UU VIET company 4), to manage professional workforce, it has always considered compliance ordinances, making regulations as a very important factor in business environment. Its framework consists of director, deputy director, supervisor and the successor is selected by the board of director based on performance and ability to contribute to the company. Training of corporate governance is often conducted in the company to equip staff with solid knowledge to meet customer needs. Its control of corporate governance hardly depends on other agencies like ISO systems, financial institutions, etc. It always view corporate governance as a factor closely related to organization culture. The creation of a business management system will direct the individuals to work in a proper process and serve the needs of customers effectively Comparison between Vietnamese companies and Japanese companies Based on the actual survey result of researcher group of Wako University at Japanese companies and interview result at 4 Vietnamese companies in Vietnam, one brief comparison is described as below. Regarding the actual survey result, answers with the highest percentage are used for this comparison. Through these result, some similarities and differences between Japanese companies and Vietnamese companies are confirmed. As a main similarity, compliance is very important in both Japanese companies and Vietnamese companies. Almost all companies obey control laws and regulations to operate business activities. In addition, like Japanese shareholding companies, Vietnamese shareholding companies set up supervisor committee. However, there are some differences between Japanese companies and Vietnamese companies. One of the differences is the appointment of future successor. Management board such as chairman, general counsel, general director often becomes the successor in Japanese companies. But, in Vietnam, the appointment of successor is often based on performance and

9 34 和光経済 第 48 巻第 2 号 contribution of individuals. Furthermore, in Japanese companies, training or education of corporate governance is often conducted, yet it has not been noticed in Vietnam. Moreover, in Japanese companies, control of corporate governance depends on ISO system mainly whereas there is a limit to liability companies in Vietnam. Finally, in Vietnam, corporate governance is more closely related to organization culture than that in Japan. Notes 1) The interview was carried out on August 24th, Mr. Khanh, Director of BITAHACO company, helps us answer for this interview. 2) The interview was carried out on August 24th, Mrs. Thao, General Director of BITEX company, helps us answer for this interview. 3) The interview was carried out on August 24th, Mr. Loi, Director of TAN HOA LOI company, helps us answer for this interview. 4) The interview was carried out on August 24th, Mrs. Hong, Vice Director of UU VIET company, helps us answer for this interview. 6. Conclusion Corporate governance in Vietnam has been receiving a considerable attention of researchers, managers over the past years. Through some survey results concerning corporate governance of Japan, this paper introduces corporate governance of Vietnam briefly, outline of interview at four companies in Vietnam. Some similarities and differences between Japanese companies and Vietnamese ones are also mentioned in this paper. However, some limitations are noted in this paper. As explained above, six questions of a group of researchers of Wako University were used for interview survey at four Vietnamese companies. So as to consider the corporate governance of Vietnam, these questions are not insufficient. Hence, it is necessary to set up other question items and carry out the interview at other Vietnamese companies. Besides interview, it would be beneficial to conduct actual questionnaire survey like actual survey of the researchers of Wako University. References 1. ADB(2014), Asean corporate governance scorecard, Country reports and assessments , IFC(2012), Vietnam Corporate Governance Scorecard 2012, McGee, R. W.(2010), Corporate Governance in Transition and Developing Economies: A Case Study of Vietnam, SSRN Electronic Journal, Nguyen, D. C.(2008), Corporate Governance in Vietnam: Regulations, Practices and Problems, Central Institute for Economic Management, Đặng, T. Đ.(2008), Quản trị Công ty đại chúng - vấn đề và khuyến nghị, SAGA. 6. Ueno, T., Ide, K., Fukuda, Y., Yamazaki, H., Toma, M., Maruyama, K., Hirai, H. & Otsubo, F.(2015) Efforts for New Fields and Challenge towards the Job Creation of Corporations, Wako Keizai, Wako University, 47(3), Tanaka, S.(2009), Law on Enterprises of Vietnam: From Japanese perspective, NUCB journal of economics and information science, 54(1), Nham, P. T. & Nguyen, A. T.(2013), Corporate Governance Agency Problems of Public Listed Companies in Viet Nam, VNU University of Economics and Business, 29, ( Received Oct. 28, Accepted Oct. 30, 2015) 2015